Pilgrim's Pride cuts view, to revamp

NEW YORK (MarketWatch) -- Poultry producer Pilgrim's Pride Corp. on Tuesday slashed its first-quarter earnings outlook, citing weak performance in its Mexico operations, and said it planned to further restructure the company's turkey division, cutting 300 jobs.

Pilgrim's Pride
PPC, +0.31%
also said the selling price of chicken dropped because of fears over avian influenza.

Shares plunged on Tuesday, closing down about 24% at $25.36 on the New York Stock Exchange, Pilgrim's Pride hit its lowest level in more than a year, setting a 52-week low at $25.04.

The Pittsburg, Texas-based company forecast first-quarter earnings of 36 cents to 41 cents a share, which excludes charges associated with the turkey restructuring and certain one-time tax benefits in the Mexico operations.

Analysts, on average, had expected a profit of 82 cents a share, according to estimates compiled by Thomson First Call. The company's prior outlook was for 75 cents to 85 cents a share.

Merrill Lynch analyst Diane Geissler maintained her neutral rating on Pilgrim's Pride, saying she expects the negative earnings trend to continue for at least the next several quarters.

Meanwhile, Pilgrim's Pride withdrew its forecast for the rest of the year.

"My main concern is what this year is really going to look like. avian flu is a concern, especially if it impacts supply here in the U.S.," said Greggory Warren, an equity analyst with Morningstar. "At the end of the day, this is a commodity-based business and investors have to expect swings like this."

Pilgrim's Pride noted significantly worse-than-expected performance in Mexico and lower sales prices on chicken-leg quarters in its U.S. operations.

"We are extremely disappointed with the results realized this quarter by our Mexico operations," said O.B. Goolsby, president and chief executive, in a statement.

Sales momentum during the Christmas holiday season in Mexico failed to live up to expectations and last year's performance, Goolsby said.

The company withdrew its forecast for the rest of the year, but said it would update it during its earnings conference call on Jan. 23.

Morningstar's Warren said the fact that the company isn't holding a call following the news release on Tuesday is "troubling."

"When you come out with this much of a cut, at least get out there and talk to the analysts," Warren said.

U.S. operations were hurt by sharp declines in the selling price for chicken-leg quarters, which declined from an average selling price of 45 cents a pound in the fourth quarter to about 29 cents a pound in the first quarter.

"We attribute this drop in selling price primarily to the effects focus and concern over avian influenza has had on international demand for poultry products and to the disruptions caused by having to reroute product in transit to locations other than those intended as these concerns materialized," Goolsby said.

'Dark days'

In a research note entitled "Dark days for dark meat," Credit Suisse First Boston analyst David Nelson cut his first-quarter earnings estimate to 39 cents a share from 83 cents, and his 2006 estimate to $2.06 a share from $3.65.

"We believe the big area of change is in leg quarters, which are exported and cannot be priced significantly forward," Nelson wrote.

"We believe at least some of this is due to consumer concern in the export markets regarding avian influenza," Nelson said, citing the drop in leg-quarter prices.

The company said it plans to further restructure its turkey business. It will halt the production of ground turkey and cooked turkey deli breast meat items at its Franconia, Pa., processing plant effective March 3.

The plant will instead focus on refrigerated salads line. Turkey operations will be limited to fresh and frozen whole turkeys, produced in New Oxford, Pa.

The restructuring is expected to have a positive impact on annualized pretax earnings of about $10 million to $15 million a year, cutting working capital in the Franconia plant by about $13 million, and will result in the loss of about 300 jobs.

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